While healthcare providers are fighting to get into the Medicare managed-care business through provider-sponsored organizations, insurers already in the business are trying to hang on to what they have.
Managed-care plans say reductions in the Clinton administration's fiscal 1998 budget will cause plans to reduce benefits or raise beneficiary costs, but White House officials say HMO margins are healthy enough to absorb the cuts.
According to the American Association of Health Plans, spending in the fee-for-service portion of Medicare will increase an average of 6.1% annually from 1998 to 2002, while payments to managed-care plans will increase only 2.4% per year. In some areas of the country, the group said, payments to health plans will actually decrease in the year 2000. That's when the reimbursement rate would fall from 95% of the average fee-for-service cost to 90% under the White House budget.
For example, plans in Dade County, Fla., which has a 37% managed-care penetration rate, are currently paid $748 a month per beneficiary. Under the White House plan, that rate would be frozen for 1998 and 1999 and would decrease to $723 a month in 2000. By 2002, the rate would go back up to $758.
Administration officials argue that competition between plans will ensure that they don't decrease benefits.
HCFA Administrator Bruce Vladeck said profitability varies from plan to plan, but his agency believes HMOs in the aggregate turn a healthy profit on their Medicare managed-care businesses.
"If you look at the publicly available documentation, some of the recent mergers of publicly traded plans, particularly those that have big investments in their Medicare products, the suggestion is that this is a very attractive business," Vladeck said. "If you just look at the ratio of plans seeking to enter or expand to plans seeking to withdraw, it would suggest there's a lot of incentive for entry into this market."
But AAHP President Karen Ignagni said the 2.4% growth rate would cause many plans to reduce benefits or increase beneficiary costs. Ignagni said the AAHP doesn't collect profitability data for its member plans and couldn't estimate Medicare managed-care margins. But she noted that plan profits are regulated by HCFA.
One analyst said both sides in the debate have some valid arguments.
Will Applegate, with Kwasha Lipton Group in Fort Lee, N.J., said slowing the payment growth rate to 2.4% a year may cause some plans to reduce benefits, but "HMOs still will be attractive to retirees. For many HMOs, this business is highly profitable."
In other budget news, President Clinton met last week with congressional Republicans, and the two sides came away with vastly different views of the meeting. Clinton was upbeat after the conference, which came at his request. Republicans said the two sides were still far apart, particularly on entitlement spending.
Sen. Pete Domenici (R-N.M.) said savings on Medicare would have to be higher than the $82 billion in savings included in the White House budget.